Wells Fargo shares plunge
Few bank stocks showed the strength that Wells Fargo & Co. did in 2008. This year, few are faring worse than Wells.
Shares of the San Francisco-based giant Tuesday plummeted $4.45, or 24%, to $14.23, an 11-year low.
The stock is down 52% just since Dec. 31, compared with a 43% drop on average for big U.S. bank stocks.
The selling accelerated Tuesday after Paul Miller, a veteran bank industry analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va., predicted that Wells Fargo would cut its dividend by July to bolster its balance sheet.
Plenty of banks have hacked their dividend payments in the last year, but Wells -- long revered as well run -- was supposed to be immune.
Not so, Miller says. He figures the bank this year will have to add $2.5 billion more than he previously estimated to its accounting provisions for loan losses, in part because of continued bleeding on mortgage and other loans at Wachovia Corp., which Wells swallowed Jan. 1 in a deal that took its franchise nationwide.
That higher loan-loss provision will reduce Wells’ earnings to $1.10 a share this year, Miller said, down from his previous estimate of $1.50 and less than the company’s current $1.36-a-share annual dividend.
What’s more, he believes that Wells will want to boost a key capital ratio as a defense against a still-awful economy. Cutting the dividend would be one way to conserve capital.
The company declined to respond to Miller’s report.
Investors gave Wells the benefit of the doubt in 2008, even though it took a big risk by acquiring loss-ridden Wachovia, breaking up a planned marriage of Wachovia and Citigroup Inc. Wells’ shares fell just 2.3% last year, while bank stocks on average plunged 50%.
Now, some Wells shareholders must be wishing the bank had left Wachovia at Citi’s altar.
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